Lincoln National Corporation

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Lincoln National Corporation

1300 South Clinton Street
Fort Wayne, Indiana 46801
U.S.A.
(219) 455-2000
Fax: (219) 455-2733

Public Company
Incorporated: 1905 as Lincoln National Life Insurance Company
Employees: 16,465
Assets: $25.07 billion
Stock Exchanges: New York Midwest Pacific London Tokyo

Lincoln National Corporation is a multi-line insurance company, specializing in reinsurance, which continues to maintain its headquarters in the midwestern city of its origin. Its founders selected the name “Lincoln” as a symbol of integrity in an era when insurance companies were often suspect, and Robert Todd Lincoln quickly authorized the use of his father’s image. Through the years the company grew both by internal expansion and by acquisitions, always maintaining stable leadership and highly conservative accounting and investment principles.

Lincoln National Life Insurance Company was preceded by a troubled firm in Fort Wayne, Indiana, called the Fraternal Assurance Society of America, which seems to have been a purely commercial operation. Its founder was Wilbur Wynant, who organized a number of supposedly nonprofit fraternal insurance companies which promised to pay benefits by leveling assessments on surviving policyholders. Wynant, who was new to Fort Wayne in 1902, persuaded a number of respected business and professional men to join him in the company, but within two years Wynant had skipped town, and his local associates were left to pick up the pieces or fold the company. The local businessmen reorganized as a legal reserve company to be capitalized at $200,000 but prepared to open for business when $100,000 in stock was sold.

Lincoln National Life Insurance Company was incorporated in Fort Wayne on May 15, 1905. A few months later the New York state investigation of the insurance industry known as the Armstrong Committee exposed widespread abuses and led to much more effective state regulation of the industry. Lincoln National was fully prepared for the more stringent regulations, and used the Lincoln name and image to good effect in promoting the new company amid widespread public suspicion of all insurance companies. Arthur Fletcher Hall, formerly an agent for Equitable Life Assurance Society of the United States, was brought from Indianapolis, Indiana, to serve as secretary and manager, and for practical purposes he was the chief executive officer from the beginning, although a local businessman held the unsalaried office of president. When the company began to write policies in September of 1905 it had three agents, including Hall. By 1911 the company had 106 agents and was in sound financial condition.

Arthur F. Hall was the dominant figure at Lincoln National Life Insurance for the company’s first 37 years, and he did not hesitate to employ able and determined associates. In 1911 Hall hired Franklin B. Mead, the firm’s first full-time actuary. Mead was much more than a numbers man. He devised careful plans for underwriting life insurance policies and for writing reinsurance policies for other companies, and he was a skilled manager. Mead provided statistical support for the company’s medical director, Calvin English, and Lincoln National soon achieved a reputation for writing profitable insurance on carefully screened substandard—or undesirable— risks. While the typical insurance company rejected about 11% of those who applied for coverage, Lincoln National turned down only about 4%.

In 1916 the company adopted the policy of securing additional insurance in force by taking over other companies. Michigan State Life Insurance Company, acquired in 1916, was even younger than Lincoln Life, but it had grown more quickly. Michigan State Life had been a tool of Frederick L. Apps, who had involved Michigan State Life in a complex fraud. When Lincoln National purchased Michigan State Life, a web of companies set up by Apps to support the insurance company collapsed. Michigan State Life itself was a sound purchase. The merger was so successful that Hall took over another successful midwestern firm in 1917, the Pioneer Life Insurance Company of Fargo, North Dakota. Beyond the additional insurance acquired, these mergers also greatly increased the number of experienced agents selling Lincoln National policies throughout the Midwest.

During World War I the company grew quickly. Between 1913 and 1914 Lincoln National’s reinsurance more than doubled, to $2 million. By 1917 reinsurance was bringing in $9.6 million. Lincoln National did not hesitate to pick up business from large German reinsurers at this time. In 1917 the company took over the Pittsburgh Life, with its $2.5 million reinsurance business; but the great influenza epidemic of 1918–1919 had a far greater effect on the company. Death claims almost equaled those the company had paid out over the preceding decade, and extraordinary measures were required to pay benefits. Stockholders went without dividends and the members of the executive committee personally loaned $300,000 to the company, but Mead rightly predicted that deaths attributable to the war or the epidemic would raise demand for life insurance importance.

Lincoln National was highly successful throughout the 1920s. The firm built its own office building on the southern edge of downtown Fort Wayne in 1921, part of the site it still occupies, in order to accommodate the growing number of home-office employees. Hall became president in 1923, the year the headquarters building was occupied. Hall was a paternalistic chief executive and encouraged athletic and cultural activities for employees. As was typical in the 1920s, women employees were required to resign when they married, but Hall did sponsor tennis and basketball programs for single women. There was also a nine-hole putting course atop the new building, open to clerical employees as well as to management.

In 1928 Hall employed Louis A. Warren, who was establishing his reputation as a Lincoln scholar, to direct the Lincoln Historical Research Foundation. Hall had only a vague idea of doing something in line with the company’s name, but Warren soon persuaded him that the company should sponsor and finance a major research library devoted entirely to the life of Abraham Lincoln. When Warren finally retired 28 years later, the company’s library had grown into a national center for Lincoln scholars, and it is called the Louis A. Warren Lincoln Library and Museum, funded entirely by the company.

Under Hall’s conservative management Lincoln National avoided the extravagant financial schemes of the late 1920s, although he arranged another successful merger—with Merchants Life Insurance Company of Des Moines, Iowa—in 1928. Hall fought off efforts to sell control of the company to interests based in New York or Chicago and announced his determination to keep Lincoln National in Fort Wayne. Its business was still entrenched in the Midwest and most of its policyholders lived on farms or in small towns. Throughout the 1920s the company had acquired a considerable amount of farm property as a result of defaults on mortgages it held as investments, but Hall worked diligently to make the farms pay, and the company reluctantly found itself raising livestock and distilling mint. The company shifted investment emphasis from mortgages to corporate bonds before the stock market crash of 1929, and began to sell off its farm properties in 1928, even at a loss rather than try to farm the land itself.

The Depression brought unprecedented problems for Lincoln Life and the entire insurance industry. Failed investments were more numerous than ever before, but the company began to be troubled by suicides among policyholders, often disguised as accidents. There was also an expensive problem resulting from policies written by agents desperate for business on persons who were high risks or simply unable to pay for the insurance. The company’s rejection rate increased by 75% between 1928 and 1931. Its basic business remained sound and profitable, despite the Depression, and its reinsurance business for some 300 insurance companies was particularly successful.

In 1932 the company unveiled a monumental statue of “Abraham Lincoln, The Hoosier Youth” by sculptor Paul Manship, who received $75,000 for the work. The Lincoln image was a vital theme in the company’s advertising during the 1930s. Home-office employment remained stable throughout the Depression, but the proportion of men increased significantly as the company protected the jobs of family men at the expense of unmarried women. There was not always sufficient work for all of the employees, but the company avoided layoffs and prepared for busier and more prosperous times to come. The Depression also meant opportunities for healthy companies to acquire less successful firms, and Lincoln National took over three smaller life insurance companies between 1932 and 1933: Northern States Life Insurance Company of Hammond, Indiana; Old Line Life Insurance Company of Lincoln, Nebraska; and Royal Union Life Insurance Company of Des Moines, Iowa. The company’s business was still primarily midwestern, but Lincoln National reached $1 billion of insurance in force in 1939, a goal which Hall had hoped to reach by 1930.

Franklin Mead had long been the second-ranking executive at Lincoln National, and was Arthur Hall’s likely successor until Mead’s own death in 1933. Mead’s successor as chief actuary and prospective president was Alva McAndless, always known as “Mac,” who had joined the company in 1919. Hall, in failing health, became chairman of the board early in 1939, and McAndless became president and chief executive officer. His primary concern was not in writing insurance policies—that part of the business flourished—but the low yield on the company’s investments. Indiana insurance law had been changed to permit greater investment in corporate bonds, but McAndless disliked the high-yielding 30-year obligations of utilities and railroads, while few new mortgages were available on farm property, and interest on government bonds slipped as low as 1.9% in 1940. The company turned increasingly to mortgages on urban property, particularly homes.

During World War II the company contended with higher federal taxes and a greatly altered investment climate. Labor costs were also a concern. In 1941 the company increased starting salaries for the first time since the onset of the Depression. The tight labor market also persuaded the company to relax its ban on the employment of married women. During the war there was a reduction in automobile accidents, as driving declined as a result of gasoline rationing. Life insurance companies had long escaped most federal income taxes, but wartime demand for revenue led to some changes in the laws in 1942, and the company began to pay a modest level of corporate income tax from 1943 onward.

McAndless also planned for postwar expansion. He particularly hoped to develop Lincoln National’s agency force and prod agents to sell more life insurance. By 1945 the company’s profits depended more upon its extensive reinsurance business. McAndless also kept dividends moderate and built up extensive cash reserves, both to provide against emergencies—like the Depression—and to take advantage of attractive opportunities. The company had been unable to finance an attractive acquisition during the Depression, and its leadership did not wish to be caught short again. In 1951 Lincoln National purchased the Reliance Life Insurance Company of Pittsburgh from the Mellon National Bank for $27.5 million cash. Reliance was an exceedingly conservative firm with a strong agency force. Mellon had been forced to sell the operation in order to meet the requirements of the Bank Holding Act. It was a very large merger for the early 1950s, and Lincoln National made the most of it. It retained Reliance employees, as promised; reduced expenses; and greatly improved investment results. Reliance agents were particularly strong in the South, a region in which Lincoln National was very weak.

McAndless was very much a detail man. He was always tight with the company’s money and held a close rein on the company. Under McAndless Lincoln National’s leadership became increasingly shallow as strong managers left for positions of greater authority. His management style was not well-suited for the much larger company which resulted from the Reliance merger, but before any plans were made for a change in leadership, McAndless died of a heart attack early in 1954. McAndless was succeeded by another actuary, Walter O. Menge, who had worked for Lincoln National since 1937. Menge was a systematic chief executive who understood how to manage a large and complex business and could delegate authority. He planned carefully and made effective use of Lincoln National’s large capital base while recognizing its problems. Lincoln National faced lagging sales of ordinary life insurance and a decreasing market share in a highly competitive market. He increased efforts in group insurance and continued to seek attractive acquisitions. In 1957 Lincoln National made its first move beyond the United States, acquiring the Dominion Life Assurance Company of Waterloo, Ontario.

New York state had long been known for the rigor of its insurance regulation, and only in 1960 did Lincoln National begin to write insurance there, through a new subsidiary. The effort eventually proved unsuccessful and the company no longer offers life insurance in the New York market. Two years later it acquired American States Insurance Company of Indianapolis in an effort to broaden its business beyond life insurance. This was also a defensive acquisition, to help protect Lincoln National’s position as the largest reinsurer of life insurance policies in the country. General Reinsurance Corporation, a large non-life reinsurance company had recently entered the life reinsurance market, and Menge believed that his firm should offer a full line of coverage in both the insurance and reinsurance markets in order to remain fully competitive. A year later Lincoln National made its first direct move into the European reinsurance market, although it had long written reinsurance for European firms. The company established a new subsidiary in Paris, the Compagnie de Reassurance Nord-Atlantique, and soon extended its business into Asian and African markets. Lincoln National agents sometimes complained that the firm’s extensive reinsurance business only encouraged new competitors in the life insurance field, but reinsurance was a large and very profitable part of Lincoln National’s business, more successful in many ways than its agency business.

As Lincoln National grew larger and more complex, becoming a major competitor in the international reinsurance market, Walter Menge and his associates began to plan a reorganization. There was no thought of leaving Fort Wayne, but there were plans for a holding-company structure. Before this could be achieved Menge moved up to chairman in 1964, and was succeeded as president by actuary Henry F. Rood. Rood pushed forward with plans to adopt the holding-company structure and dreamed of Lincoln National becoming a financial department store. He established subsidiaries in the Philippines and Great Britain. The Lincoln Philippine Life Insurance Company was established for legal reasons in a nation where the company already did business, but the British market was vastly different, and Lincoln National’s methods were resented widely.

Henry Rood served as president of Lincoln National for only four years before he became chairman, although he remained chief executive officer for a further three years. Thomas A. Watson assumed the office of president in 1968. A marketing expert in group insurance, he had joined the firm in 1945. Rood carried through the 1968 creation of the Lincoln National Corporation as the holding company for all of the firm’s operating companies, but Watson had the responsibility for implementing the reorganization.

In 1969 Lincoln National Corporation was listed for trading on the New York Stock Exchange, an appropriate symbol of the new holding company’s wider outlook. So too was its acquisition of Chicago Title and Trust Company in 1969, but this purchase brought unexpected problems. Title insurance was a new line of business for Lincoln National, but far more troublesome was Chicago Title’s bond-brokerage subsidiary, Halsey, Stuart & Company. The bond business was unfamiliar to Lincoln National, and Halsey Stuart’s investment-banking salaries were far higher than those paid in the insurance industry. Thus Halsey, Stuart was sold in 1973. That same year the holding company also divested its British subsidiary, which had never met expectations. Selling insurance in Great Britain was a business which the Fort Wayne executives admitted they did not fully understand. Watson also withdrew from other overseas operations, for business reasons in France, and to avoid local political trouble in the Philippines. At home Watson sharply increased investment in sales agencies in an effort to improve the basic life insurance business.

Thomas Watson moved relatively early to open Lincoln National’s offices and agencies to women and blacks. In 1973 it established Lincoln Life Improved Housing, to rehabilitate abandoned dwellings near its Fort Wayne headquarters, a program which continues.

Watson planned carefully for an early retirement and in 1977 passed the presidency to Ian M. Rolland, a Fort Wayne native who had joined Lincoln National in 1956. Like most of his predecessors, Rolland was an actuary, although he had a wide range of experience within the company.

As chief executive officer Ian Rolland stressed systematic organization and sophisticated planning as essential for a large and complex corporation. He continued Lincoln National’s policy of acquisitions, most notably Security Connecticut Life Insurance Company in 1979. Security Connecticut had no agents of its own and sold its life insurance policies entirely through independent agents and brokers. The combination of company-employed and independent agents has been successful for Lincoln National, despite the potential for conflict between agents. In 1981 Lincoln National acquired First Penn-Pacific Life Insurance Company, an Illinois firm. First Penn-Pacific brought with it growing sales in universal life policies, which quickly became a major part of Lincoln National’s life insurance business. By 1983 Lincoln National, through its various subsidiaries, had $100 billion of life insurance in force, and it continued to expand by acquiring both life and property and casualty insurance companies. The larger but less visible reinsurance business grew more by internal expansion, but the firm did acquire National Reinsurance Corporation in 1984, which brought important additions in property and casualty reinsurance. Lincoln National also cautiously reentered the British market in 1984, this time by purchasing an established British company, Cannon Assurance Limited. The following year it sold both its Canadian life insurance subsidiary and Chicago Title and Trust, withdrawing entirely from the title insurance business.

From the mid-1980s Lincoln National had greatly increased its activity in group health insurance and had established its own health-maintenance organizations in Indiana and Florida. Lincoln National organizes its business in five major lines: property and casualty, group life and health, individual life, life and health reinsurance, and pensions and annuities. It ranks as the nation’s seventh-largest publicly held insurance company.

The individual life business is steady but highly competitive, and Lincoln National has accepted a lower market share in order to avoid low-profit policies. The company sold National Reinsurance in May 1990 and withdrew from most of its property and casualty reinsurance business, but it continues to emphasize its traditional strength in life reinsurance and is expanding its role in the health reinsurance market. During the 1980s the company developed a variety of investment programs, particularly individual annuities and corporate pensions. Despite early problems, the health-maintenance organizations are now profitable and are growing in size and in geographical scope, expanding into Texas and California.

Lincoln National had not advertised its individual life insurance since the mid-1980s and it is much better known within the insurance industry than to the public at large.

As a financially sound company which pursues a long-term plan rather than immediate profit, Lincoln National has been concerned that it might become a takeover target. In 1986 the company adopted a poison-pill provision to restrict any partial takeover effort, and in July of 1990 it announced the sale of $312 million in new convertible preferred stock to Dai-Ichi Mutual Life Insurance Company. The Japanese firm plans to work closely with Lincoln National and to form several joint ventures, but is committed to a long-term holding and has pledged not to acquire more than 9.8% of the voting shares or to cooperate with any group accumulating shares. The alliance with Dai-Ichi places Lincoln National in an exceptionally strong financial position, but the precise relationship between the two firms remains to be determined.

Principal Subsidiaries

American States Insurance Companies; American States Life Insurance Company; American Union Reinsurance Company; Cannon Lincoln PLC (U.K.); Corporate Benefit Systems Services Corporation; Employers Health Insurance Company; First Penn-Pacific Life Insurance Company; Healthwin Insurance Company; K&K Insurance Group, Inc.; Lincoln European Reinsurance Company (Belgium); Lincoln National Life Insurance Company; Lincoln National Investment Management Company; Lincoln Security Life Insurance Company; Lynch & Mayer, Inc.; Modern Portfolio Theory Associates, Inc.; Preferred Financial Corporation; The Richard Leahy Corporation; Security-Connecticut Life Insurance Company; Western Security Life Insurance Company; W.W. Vincent & Company.